There Is a HUGE Inefficiency In The Stock Market

Quant Galore
5 min readDec 29, 2022

Something is seriously messed up in the markets.


Let’s quickly go over some background knowledge that will allow you to understand the inefficiency.

Companies sometimes go public offering two classes of shares. Using Google for example, the Class A shares are represented by the ticker symbol(“GOOGL”) and the Class C shares are represented by the ticker symbol (“GOOG”). As is usually the case, this dual-listing is done so that the founders can retain disproportionate ownership of the company while still being public. Class A shares typically hold more voting rights, so founders and initial investors are usually the largest holders.

Because of this voting right advantage, Class A shares may cost more than Class C shares (e.g. Class A = $100, Class C = $99.75), this is normal and in line with expectations. However, both shares represent the same company and both shares usually have identical market capitalizations as there are no other differences.

So the big picture idea is: Class A shares should always cost more than the other classes of the same stock. For the interested, see these papers which also observe the same effect:

The Inefficiency

Normally, this relationship is pretty predictable, and in line with what we’d expect:

Left: Google, Right: News Corporation
Left: Under Armour, Right: Zillow

Note: Vote Premium is calculated by: (Class A cost — Class C cost).

This makes sense, if you get more voting privileges, then those privileged shares should be worth more. But how does this relationship fare in times of trouble?

Left: Google | Right: News Corporation
Quant Galore

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